The pound fell to the lowest levels of the year on Wednesday as the currency was pressured lower by growing fears over the prospect of Britain exiting the European Union without a trade deal in place.
Against the dollar, the pound fell below the $1.29 level for the first time in a year.
GBP/USD hit a low of 1.2854 and was at 1.2869 by 10:39 AM ET (14:39 GMT), off 0.53% for the day.
Sterling hit a 10-month low against the euro, with EUR/GBP advancing 0.48% to 0.9030.
Sentiment on the pound has soured after Britain’s International Trade Secretary Liam Fox said in an interview published in the Sunday Times newspaper there was a 60:40 chance that the UK would leave the European Union without an agreement.
The remarks came after Bank of England Governor Mark Carney warned late last week that there is an “uncomfortably high” risk of a no-deal Brexit.
Meanwhile, the dollar edged higher against a currency basket as fears over global trade tensions returned to the fore.
The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, inched up 0.11% to 95.10 after slipping 0.2% on Tuesday.
The index touched the highest level in nearly a year last week, bolstered by rising U.S. interest rates and fears over the impact of trade conflicts.
Trade tensions escalated after China announced that it will impose retaliatory 25% tariffs on $16 billion of U.S. imports.
China’s commerce ministry said it was forced to retaliate after the Trump administration said Tuesday that it will impose 25% tariffs on another $16 billion of goods it imports from China later this month.
The move is the latest by Washington to pressure China into negotiating trade concessions after it imposed tariffs on $34 billion of goods in July.
China’s yuan slid against the dollar, with the currency, which is usually closely controlled by Beijing, at 6.8332 in offshore trading.
The dollar was weaker against the broadly firmer yen, with USD/JPY losing 0.38% to trade at 111.01 ahead of expected bilateral trade talks between the U.S. and Japan in Washington on Thursday.
The yen also gained momentum against the euro, with EUR/JPY losing 0.4% to trade at 128.67.
The euro was a touch lower against the dollar, with EUR/USD dipping to 1.1591.
Meanwhile, Russia’s rouble fell against the dollar, closing in on two year lows, amid fears over the prospect of fresh U.S. sanctions for its alleged interference in U.S. elections and its activities in Syria and Ukraine.